How changes to national insurance will impact SMEs

National insurance changes

How changes to national insurance will impact SMEs

The UK government announced that National Insurance Contributions for employers, employees and the self-employed would increase by 1.25% from April 2022.

SMEs in the UK will need to be aware of what this means for them, so we have broken down the key considerations in this article.

How will business owners be affected?

At present, employers pay secondary Class 1 National Insurance Contributions at a fixed rate of 13.8% for all employees who earn more than £8,840 per year. This will go up to 15.05% after 6 April 2022. A new health and social care tax is arriving in April 2023, and when it does then National Insurance Contributions will revert to the rate of 13.8%.

How will the changes affect employees?

Any employee who earns more than £8,840 per year currently has 12% of those earnings taken from their pay to cover Class 1 National Insurance Contributions. Anyone with an annual income over £50,270 is considered a higher rate taxpayer, which means they pay an additional 2%.

These employee contributions will increase to 13.25%, with that additional amount for higher rate taxpayers increasing to 3.25%.

How will the self-employed be affected?

Self-employed people currently pay Class 4 National Insurance Contributions, and the basic rate is 9% of their earnings. This will increase to 10.25% from April 2022. Higher tax rate earners currently pay an additional 2%, and that will go up to 3.25%.

The increase does not apply to those who pay Class 2 or Class 3 National Insurance Contributions.

In summary

The National Insurance increase applies to both employers and employees, so businesses must budget for these additional costs that will begin in April 2022. Existing reliefs will still apply, and there may be some strategies employers can consider for their higher earners to ensure they don’t lose out excessively as a result of these changes.

Seek support

If you are a sole trader or an SME and need support with your small business accounting to prepare for the coming changes, contact SQK Accountancy if you are in or around Manchester. We can offer a range of services and expert advice for your accounting needs to ensure full tax compliance and minimal disruption as the new NIC rates come into effect.

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